One day after converting its hostile takeover bid to an all-cash offer of $6 per share for Tenet Healthcare, Community Health Systems filed a motion in U.S. District Court for the Northern District of Texas to dismiss a lawsuit brought by Tenet accusing CHS of improper Medicare billing.
“Converting our offer to all cash underscores our commitment to completing this transaction and renders Tenet’s irresponsible and inaccurate lawsuit irrelevant to our offer. We are confident that our business practices are appropriate and we will respond in detail to Tenet’s claims in due course,” said Wayne T. Smith, chairman, president and CEO of Community Health Systems.
Tenet filed the lawsuit last week and intends to press forward with its lawsuit, which claims CHS intentionally codes patients for inpatient care instead of lower-paying observations. “This changes nothing,” said Rick Black, a spokesman for Tenet. “We intend to vigorously prosecute our claims.”
See also: Tenet files lawsuit against Community Health Systems; Community Health Systems: Tenet lawsuit is 'baseless']
Tenet indicated it would evaluate the all-cash offer on its merits – though it seems unlikely company management will find it any more palatable now than it did late last year, when it rejected an offer of the same value.
At the time, Tenet management indicated that the offer, which valued Tenet at approximately $3.3 billion, grossly undervalued the company.
"Our board believes that the interests of Tenet shareholders would be better served by benefiting from 100 percent of the upside inherent in Tenet rather than accepting Community Health’s inadequate proposal. In addition, our board has serious concerns about Community Health’s ability to integrate and operate a business like Tenet,” the company said in a statement in early December, when CHS initiated the hostile bid.
While moving forward with an all-cash bid removes one basis for the Tenet lawsuit and is a major point in CHS’ motion to dismiss, analysts aren’t sure whether an all-cash offer will make it more palatable to Tenet or its shareholders.
Vicki Bryant of corporate bond research company Gimmie Credit noted that the current offer may be of even less value than the original since it doesn't include the potential upside of the stock component.
In addition, CHS has remained steadfast in not raising its offer for Tenet despite the fact Tenet shares have consistently traded well above the offer price – even after its shares took a battering on the market in the wake of the lawsuit.
Further muddying the waters, CHS recently disclosed in an SEC filing that it had received a subpoena from the inspector general of the Department of Health and Human Services regarding potential improper Medicare and Medicaid billing.
Tenet, which is trying to execute a turnaround strategy after its own $900 million settlement of a federal billing probe in 2006, has delayed its annual meeting until November in order to show improvements in its quarterly earnings and in order to combat CHS’ bid to elect a slate of directors to Tenet’s board who could push through a merger agreement. In early January, Tenet as also adopted a "poison pill" shareholder rights agreement that aims to make dilute the value of Tenet shares should any single entity acquire more than 4.9 percent of all outstanding shares in the company.